Will Reserve Bank raise the cash rate?

PHOTO: Photo: RNZ / Samuel Rillstone

For the Reserve Bank (RBNZ) this Wednesday, it could be second time lucky

After blinking at the last minute in August when Covid-19 re-emerged, the RBNZ is once again widely expected to pull the trigger and deliver the first rise in the official cash rate in seven years.

The calls from financial markets and economists for rate rises remain persistent, even if the Delta variant has forced them to turn down the volume.

The RBNZ has arguably reached its two mandates – full employment, given unemployment has fallen to 4 percent, while inflation is 3.3 percent and forecast to head higher is starting to get uncomfortably outside the central bank’s target.

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On top of that was the supercharged 2.8 percent surge in economic growth in the June quarter.

ASB chief executive Nick Tuffley said even with the uncertainty caused by Covid appearing outside of Auckland, a rate rise was to be expected.

“Given the medium-term outlooks for inflation pressures and labour market tightness, cautiously tightening monetary policy is still the ‘least regret’s approach – at least for now.”

RBNZ assistant governor Christian Hawkesby last week cooled any lingering talk of a 50 basis point OCR rise to 0.75 percent.

“We think the economy’s moving into a period when we can start removing some of this effectively emergency stimulus that we put in place to support the economy.”

“The question for us … is do we still hold to that view and do we take big steps or little steps as part of that removing stimulus through time as the economy recovers and stands on its own two feet,” Hawkesby told RNZ’s Nine To Noon.